If the move online has proven one thing, it is the value of human attention. Faced with a seemingly infinite number of online choices, ebusinesses have quickly discovered that rising above the noise of a thousand Websites requires creativity. Shouting is not very creative. Just hanging up your shingle and waiting is not very creative either.
Rather, new companies must structure their businesses in new ways. One of the great opportunities of the Net-based world is what we at Draper Fisher Jurvetson have come to call "viral marketing," not because true viruses are involved but because good newsand badreplicates online with a speed only before seen in the biological world.
Consider the case of Hotmail. In 1995, Sabeer Bhatia and Jack Smith founded the company on a bold new concept and product category-free, Web-based email. (Fair warning: DFJ was the founding investor in Hotmail, and I was a member of its board of directors through its acquisition by Microsoft.)
Within 18 months, the service had signed up 12 million subscribers. That pace has not abated, and it now signs up more than 150,000 every day and is the largest Web-based email provider in the world. It has grown a subscriber base more quickly than any new company in history. It now boasts more than 34 million subscribers. Yet from product launch onward, Hotmail spent less than $500,000 on marketing, advertising, and promotion. Compare this to an estimated $20 million spent on advertising alone by Juno, Hotmail's closest competitor, with a fraction of the users.
How did Hotmail, an undercapitalized startup, pull off this amazing growth? Through viral marketing. Based on investor Tim Draper's original suggestion, every outbound email contains a final tag that reads, "Get Your Private, Free Email at http://www.hotmail.com." So every outbound message conveys an advertisement and an implied endorsement by the senderthe recipient knows that the sender is a Hotmail user, and that this free email thing seems to work.
Hotmail made each new user a company salesperson. The message spreads organically each time an email is sent.
In addition, every Hotmail subscriber, without exception, has filled out a demographic profile. This is an unprecedented supply of personal information that can then be sold to advertisers.
Hotmail has it figured out. Its business model maps well to the online medium.
The Hotmail adoption pattern is that of a viruswith spatial and network locality. People typically send emails to their associates and friends. Many are close geographically. Result: We would notice the first Hotmail user from, say, a university town or from India, and then the number of subscribers from that region would mushroom. The beauty of this is that it required no marketing dollars. The word-of-mouth spread of the Hotmail message is involuntary. Customers do the selling.